PLEASE SEE ATTACHMENT FOR FULL ANNOUNCEMENT
Date: 5th March 2010
Contact: Jeremy Tigue
F&C Management Limited
020 7011 5440
FOREIGN & COLONIAL INVESTMENT TRUST PLC
Audited Statement of Results
for the year ended 31 December 2009
Summary of Results
Net asset value per share up 18.8% to 304.7p
(debt at market value)
Annual dividend per share up 3.1% to 6.65p
Share price up 19.1% to 272.1p
The Chairman''s Statement
2009 was a much better year than we expected twelve months ago. Your
Company''s share price rose by 19.1% to 272.1 pence over the year, and 46.5%
from the low of 185.75 pence on 3 March 2009. The total dividend for the year
will be 6.65 pence per share, an increase of 3.1%. Our net asset value total
return was 21.3%, which was below the returns of our benchmark and our close
peer group of 23.4% and 27.9% respectively.
Our listed portfolio did well, but our private equity portfolio fell in value
as I forewarned last year, and this was the main reason for our disappointing
relative performance. In 2010 we expect private equity to do better, whereas
listed markets may find the going harder.
Over the last ten years to 31 December 2009, shareholders have had a share
price total return of 34.0%, compared with the total return of our benchmark
of 13.8% and the weighted average of our close peer group of 31.7%.
Performance, Attribution and Activity
Since 2003 some 15% of the portfolio has been invested in Emerging Markets
and Developed Asia to capture the rapid economic growth and exciting
investment opportunities in these regions. After a difficult 2008 these areas
performed strongly in 2009, and our investment there was the biggest positive
contributor to our results for the year. Asset allocation in listed markets
added 3.1% to performance, but overall asset allocation was 2.3% negative
owing to the drag of private equity.
Our private equity portfolio had a significant effect on our performance
against the benchmark and the close peer group, as the indices do not include
private equity and only one of our close peers has any exposure to this asset
class. In 2008 private equity valuations fell by less than listed markets,
but this was largely a timing issue and we expected valuations to fall in
2009. This was all too accurate a forecast and our private equity portfolio
fell by 13.1%. This was partly due to the strength of sterling. The recovery
in listed markets has already begun to feed through to private equity
valuations.
Stock selection made a positive contribution to our results in 2009. We
underperformed slightly in the UK and Developed Asia, though the longer-term
records in these markets remain good. We had a strong year in North America
and Europe, but a disappointing year in Japan. Since the year-end the
management of our Japanese portfolio has been moved back to F&C, where
performance over the last four years has been better.
Reducing gearing at the start of the year and funding buyback activity were
the main reasons for portfolio changes in our listed portfolio. We sold 288m
of shares in our listed portfolio, invested a net 37m in private equity,
spent 121m on share buybacks and repaid 110m of short-term borrowings. At the
year-end effective gearing was 6.0% compared with 12.2% at the end of 2008.
Being geared into rising markets contributed 0.4% to our performance and
buying back shares added another 1%.
No performance fee was earned by F&C this year. Our total expense ratio was
0.58% of average total assets, unchanged from 2008.
Income, Expenses and Earnings
2009 was the worst year for UK and US dividends since the 1930s. The most
severe reductions came in the banking sector, but many companies raising
fresh funds accompanied these moves with significant dividend cuts. Many of
our largest holdings did increase their dividends, but this was not enough to
offset the damage. Exchange rate movements and portfolio sales also had a
negative impact on our total gross income, which fell by 22.4% to 52.7
million.
Management and performance fees fell, but other operating expenses increased
by a similar amount, largely due to the significant costs of obtaining bank
loan facilities. As a result, overall operating expenses were marginally
higher than in 2008. We had no VAT repayment credits which, together with
associated interest, totalled 8.9m over the previous two years. On the other
hand, finance costs fell by 4m as a result of the repayment of short-term
borrowings early in the year. Buying back and cancelling shares had a
positive impact on revenue earnings per share, which were 5.31 pence compared
with 6.90 pence in 2008.
Dividends
A year ago we forecast that the dividend for 2009 would be at least
maintained. An unchanged interim dividend of 3.00 pence per share was paid in
September 2009. We are now proposing to pay a second interim dividend of 3.65
pence per share on 31 March 2010, in lieu of a final dividend, which last
year was 3.45 pence per share. The total dividend for the year will therefore
be 6.65 pence per share, an increase of 3.1% on the previous year. This is
the 39th consecutive increase in the annual dividend, and is above the 2.4%
increase in the Retail Prices Index for 2009.
We believe the worst of the cuts in dividends is over, but our total revenue
will fall again in 2010. Nevertheless we expect to pay at least the same
dividend for 2010.
We are able to increase our dividend this year and make a forecast for 2010,
because of the strength of our revenue reserve. The ability to retain income
in good times and build up a revenue reserve is a major advantage for
investment trusts. In anticipation of difficult times, we decided more than
ten years ago to increase our reserve when income was strong, with a view to
using part of it when needed. Indeed the transfer from reserves in 2009 is
less than the VAT repayment credits we received in 2007 and 2008. After
paying the second interim dividend, the reserve will be about 94.6m compared
with the annual dividend cost of 43.2m.
Buybacks
After a lull of over a year, our share buyback activity picked up sharply
from September 2009. For the year as a whole we bought back 46,930,650
shares, or 6.9% of the shares in issue at the start of 2009. It is very
striking that when markets were at their most volatile and depressed levels,
the discount reduced and we bought back hardly any shares. When conditions
improved and investors became less risk averse, the discount widened and
buybacks increased. At the year end the discount was 10.7% compared with
10.9% at the end of 2008.
Shareholders
The number of shareholders rose marginally this year to 109,000, but the more
significant change was in the composition of the share register. Investors in
the various F&C savings plans made net purchases of 21.7m, 80% more than in
2008. These savings plan investors own 41% of the Company, while institutions
account for only 16%. Direct investors here and in New Zealand, shares owned
in other savings plans and wrappers, and holdings managed for individuals by
professional managers account for the balance of 43%.
In March 2009 we entered the FTSE100 Index for the third time in the last
fifteen years, and in September 2009 we left the index for the third time. On
each occasion we have entered the index, in 1995, 2003 and 2009, it has been
close to 3500 and thereafter there has then been a strong market rally, which
has led to us falling out again. In the long term our performance has been
much better than the FTSE 100 Index - since we first entered the index in
December 1995 our share price has risen by 70%, while over the same period
the index itself is up only 45%.
The Board
Ronald Gould retired from the Board on 27 January 2010 owing to increasing
commitments overseas. He was appointed Chief Executive of Chi-X Asia Pacific
in September 2009 and has now moved to Hong Kong. Ron joined us in 2005 and
has been an excellent and effective Director, providing an incisive and
insightful contribution to the Board. I would like to thank him for all he
has done for the Company over the last five years.
I will be retiring immediately following the Annual General Meeting on 6 May
2010, having served as a Director on the Board of your Company for nine
years, and the last eight years as your Chairman. I am delighted to say that,
after a comprehensive search and interview process, we announced in September
2009 the appointment of my successor, Simon Fraser, as a Director and
Chairman Designate. Simon has a wealth of investment experience and
knowledge, having worked at Fidelity International for over 28 years, where
he was Chief Investment Officer from 1999 to 2005. He became a non-executive
director of Barclays PLC in 2009, and he has had experience of investment
companies through his non-executive directorships at Merchants Trust PLC,
Fidelity European Values PLC and Fidelity Japanese Values PLC.
Simon Fraser joined your Company''s Audit and Management Engagement Committee
on his appointment. He also joined the Nomination Committee on 1 January 2010
and was appointed as its Chairman on 27 January 2010. He will take over from
me as Chairman of the Board immediately following my retirement at the end of
the Annual General Meeting.
Simon Fraser is standing for election at the Annual General Meeting. Michael
Bunbury and Max Ward are standing for annual re-election as they have both
served on the Board for more than nine years. Following the annual
performance appraisal process, the Board is recommending that shareholders
vote in favour of all of these Directors. We do think that an element of
continuity and experience is very important for a long-term investment
company.
It has been a great privilege for me to serve as a Director and as Chairman
of your Company. I would like to thank my colleagues on the Board for their
support throughout, and also the investment, secretarial and finance teams at
F&C, and in particular Jeremy Tigue and Hugh Potter. Foreign & Colonial
Investment Trust is a very special company with a long history, surviving
through many difficult times, and managing over the long-term to grow
shareholders'' money in a prudent and effective way. Your Company is in good
hands and in good shape, and I wish all of you every success in the future.
Management
After its annual comprehensive review of the Manager''s overall performance
and service during the year, your Board has decided that F&C should continue
as Manager, and believes that their re-appointment on the terms agreed is in
the interests of shareholders as a whole.
In mid 2009 F&C Asset Management plc ("FCAM"), the Manager''s parent company,
became totally independent following Friends Provident PLC''s distribution of
its 52% shareholding to its shareholders. Any lingering uncertainty over
FCAM''s future was therefore removed, leaving it better positioned to develop
and grow its business.
The Future
A year ago I expected 2009 to be the worst year for global economic growth
since 1945, and I also pointed out that equities were cheaper than they had
been for many years. The economic news was as bad as I had feared, but share
prices have had one of their best ever years. While there remains great
uncertainty about the future, there are some issues that are much clearer
than a year ago.
The first is the acceleration of the transfer of economic power from West to
East. We believe this process has many years to run, although it will be
accompanied by periodic crises and setbacks. Our exposure to faster growing
markets, both directly and through holdings in companies which derive an
increasing proportion of their revenues from these economies, will continue
to play a very important part in our investment strategy.
The second is the huge level of government debt in many countries, but
particularly the UK and the USA. Unless governments come up with credible
plans to reduce their deficits there is a real danger of renewed market
turmoil and currency volatility.
The third is that there will be a long period during which many individuals
and companies will need to reduce their debts to put themselves on a more
secure financial footing. If this leads to an increase in savings, there may
be increased demand for our shares from new investors.
After the sharp rises of the last twelve months we are expecting markets to
be volatile in 2010. In the UK the general election will create uncertainty,
but the most significant global uncertainty is when and how central banks end
the exceptional measures of very low interest rates and quantitative easing
they put in place to respond to the financial crisis.
Our strategy is to remain highly diversified, to concentrate on companies
with strong financial positions that can pay dividends and to maintain as
much financial flexibility as possible. We expect to invest more in private
equity in 2010 as part of our existing commitments currently totalling 260m
are drawn down into new investments. We remain convinced of the long-term
attractions of private equity.
Looking ahead, the Alternative Investment Fund Management EU Directive, which
is expected to come into effect in 2012, will result in some changes and
extra expense for investment companies. The Association of Investment
Companies, your own Board and other investment companies are lobbying hard to
ensure that this EU Directive is not unduly restrictive. In terms of
opportunities, the Financial Services Authority''s Retail Distribution Review
in the UK should be positive for investment companies, when implemented in
2013, as it should level the playing field with open-ended investment
companies. The payment of advisory fees, rather than commission to financial
advisers, should result in more investment companies being included on fund
distribution platforms and being recommended by advisers on the basis of
their performance and lower expenses.
We will continue to strive for good and consistent relative outperformance
over the long-term, and look to add value for shareholders through a virtuous
circle of net asset value and share price total return, discount control
management, dividend growth, a low and competitive total expense ratio and
effective marketing.
Annual General Meeting
You are encouraged to return your voting instructions for the Annual General
Meeting, which will be held at Merchant Taylors'' Hall at 12 noon on Thursday
6 May 2010. All shareholders and savings plan investors are welcome to
attend. Our Fund Manager will make a presentation, and you will be able to
meet and question the Directors at the meeting and afterwards over
refreshments. I do hope you will be able to join us.
Mark Loveday
Chairman
4 March 2010
End CA:00192179 For:FCT Type:FLLYR Time:2010-03-08:08:30:31